India Semiconductor Mission 2.0: Centre not keen on covering tech transfer, land costs under new chip scheme
Under the newly approved India Semiconductor Mission 2.0 (Semicon 2.0), the Centre has indicated it does not intend to extend central fiscal support to two specific cost heads that industry had sought coverage for: technology-transfer costs (fees paid to foreign IP/process-technology licensors) and land-acquisition costs for setting up fabrication and packaging units.
Central support under the scheme continues to be structured around reimbursing a share of eligible capital expenditure — machinery, plant and building construction — rather than land or licensing costs.
Land acquisition and additional capital subsidies are expected to remain the responsibility of state governments, which compete to host semiconductor projects through their own state-level incentive policies.
The clarification comes days after the Union Cabinet approved Semicon 2.0 with an outlay of about Rs 1.27 lakh crore, as companies and states sought clarity on the exact scope of central funding before finalising project proposals.
Centre-State Division of Incentives in India's Semiconductor Policy
India's semiconductor manufacturing incentive architecture is deliberately two-tiered: the Union government, through the Ministry of Electronics and Information Technology (MeitY), funds a share of core project capital expenditure, while state governments separately offer land, utility, and additional capital incentives to compete for investment. This division reflects the constitutional allocation where land and industrial siting fall largely within state domain, even though electronics manufacturing policy is driven centrally.
Key Details
- Central support under the semiconductor fab/ATMP scheme extends fiscal support of up to 50% of project cost on a pari-passu basis for approved fabrication, compound semiconductor, and Assembly-Testing-Marking-Packaging (ATMP/OSAT) units.
- States such as Gujarat (2022–27 Semiconductor Policy) layer additional capital subsidies of up to 40%, land subsidies of up to 75% for the first 200 acres of a fab project, and stamp duty and power/water concessions on top of the central package.
- Uttar Pradesh's 2024 semiconductor policy similarly offers an additional 50% capital subsidy alongside duty exemptions, illustrating inter-state competition for fab investment.
- As of 2026, the central government has approved semiconductor and display-related projects across multiple states including Gujarat, Assam, Odisha, and Uttar Pradesh under the India Semiconductor Mission and related schemes.
By excluding land and technology-transfer costs from the central Semicon 2.0 envelope, the Centre keeps its outlay focused on capex reimbursement while continuing to push land assembly and top-up subsidies onto states — reinforcing the existing Centre-state cost-sharing pattern rather than departing from it.
Technology Transfer Costs in Capital-Intensive Manufacturing
"Technology transfer" refers to payments made by a domestic manufacturer to a foreign technology owner (often a fab-equipment maker or process-node licensor, since India currently has no indigenous leading-edge fabrication process) for the right to use proprietary manufacturing processes, designs, or know-how. In capital-intensive, technologically complex sectors like semiconductor fabrication, these licensing costs can run into hundreds of millions of dollars and are distinct from capital expenditure on plant, machinery, or land, which is why incentive schemes typically define eligible cost heads narrowly.
Key Details
- India's semiconductor fabs approved so far (including projects at Dholera, Gujarat and elsewhere) have relied on technology partnerships with established global players, since India lacks domestic leading-edge fabrication IP — making tech-transfer/licensing cost a material, non-trivial input cost for any fab project.
- Global semiconductor fabrication remains concentrated in a handful of players (notably Taiwan's TSMC), which is part of the strategic rationale for India's incentive push to de-risk global supply chains.
- The India Semiconductor Mission's original 2021 outlay of Rs 76,000 crore, and the 2026 Semicon 2.0 outlay of Rs 1.27 lakh crore, are both administered by MeitY and structured around capital-expenditure reimbursement rather than recurring licensing or IP costs.
The Centre's reluctance to fund technology-transfer costs signals that companies bringing in foreign fabrication technology must absorb licensing costs themselves or negotiate them separately, even as the government subsidises the "hardware" side (plant and machinery) of setting up a fab.
- India Semiconductor Mission 2.0 (Semicon 2.0): approved by the Union Cabinet on July 15, 2026, with an outlay of approximately Rs 1.27 lakh crore.
- Central capital-expenditure support for fabs/ATMP units: up to 50% of project cost on a pari-passu basis.
- India Semiconductor Mission (original, 2021): Rs 76,000 crore outlay, approved December 15, 2021, under MeitY.
- Semicon 2.0 is projected to draw about Rs 4 lakh crore in ecosystem investment and generate around Rs 2 lakh crore in semiconductor production.
- Excluded cost heads under central Semicon 2.0 support (per this report): technology-transfer/licensing fees and land-acquisition costs — left to companies and state governments respectively. [Unverified — specific exclusion language not independently confirmed against a primary government document at time of writing]